7 Dividend Stocks to Increase Your Returns

BALTIMORE ( Stockpickr) -- The market has been providing investors with pretty unwelcome price action during this short post-Memorial Day week. On Wednesday, the S&P 500 shed 2.3%, the index's biggest single-day loss since back in August 2010. And the selling only looks like it will accelerate in today's trading session.

When the market fails to produce gains, investors always seek alternatives. And right now, dividend-payers are a good option. That's because dividend stocks produce returns regardless of what the broad market is doing. Provided that corporate fundamentals remain intact, these companies will continue to pay out cash to their investors.

Now, with solid earnings continuing to trickle down to Wall Street, dividend hikes are continuing to be a major theme -- all told, 21 companies announced increases in their shareholder payouts last week, up from 20 the week before.

That's a significant metric for shareholder returns: Over the last 36 years, dividend stocks outperformed the rest of the S&P 500 by 2.5% annually, and they outperformed nonpayers by nearly 8% every year, all while paying out cash to their shareholders, according to a study from NDR.

Each week, we take a look at the stocks that are hiking their payouts. Here's a look at some of several stocks from our list of recent dividend-increasers.

H.J. Heinz

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Condiment king H.J. Heinz ( HNZ) may be best-known for its ketchup, but the firm is actually one of the world's major packaged foods manufacturers, with brands that produce everything from soups to frozen foods in its product portfolio.

Heinz's ability to keep its sales strong in recent years has been telling. While rising input costs and cost competition from private label brands have squeezed competitors, Heinz has done a good job of resisting consumer attrition. That's thanks to exceptional consumer stickiness with its core products as well as comparatively large international exposure. With overseas markets contributing nearly two-thirds of annual sales, the company already has the infrastructure in place to tap growth markets when times are tough at home.

Historically, Heinz has remained vigilant about returning value to shareholders, paying out the majority of its earnings to its owners. While that's meant relatively high debt levels for the company, the added flexibility of discretionary dividends means that the company could divert its massive cash flows to a more pressing need were push to come to shove.

That said, it's unlikely this stock will see any sort of payout interruption. It remains a solid core dividend holding right now.

Deere

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$35 billion equipment firm Deere ( DE) owns a sizable chunk of the agriculture and construction markets with its easily recognizable line of green heavy machinery. Last week, the company increased its dividend payout by 17.1%, also a sizable chunk. That hike brings Deere's total quarterly dividend to 41 cents per share, a 1.95% yield.

The past years have been tough for Deere as a seizing construction market caught up with a rough credit market for the company's lending arm. Despite that double-exposure to the financial crisis, the company has managed to keep its head above water, buoyed in large part by solid lending practices and now by fast-rising soft commodity costs. While competition in lucrative emerging market countries continues to be fierce, Deere is well-positioned to take advantage of the growth opportunities to be found in the BRICs.

While Deere's payout hardly makes it a high-yield play, it's important to remember that dividend yields aren't the same for everyone -- they're based on your cost basis. As a result, for investors that picked up shares around early 2009 lows, Deere's current yield is creeping up on 6%.

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Hewlett-Packard ( HPQ) is knee-deep in the process of converting itself from a computer manufacturer to a diversified IT firm, a prescient move given the headwinds in the OEM business right now. Excessive competition has turned PCs into a highly commoditized business with thin margins and highly cyclical exposure. Now HP is building out its complementary operations, with a focus on high-end enterprise IT services.

As a result, the company should be able to take advantage of the upswing in IT infrastructure spending that companies are undertaking in 2011 -- but competition is still powerful in this new direction. Of all the major PC makers, HP has long been one of the best-diversified, with a large share of the printer market. The printer business provides significant recurring revenue from high-margin consumables such as ink, and it's likely one of the reasons that HP's been one of the firms most eager to embrace enterprise IT.

Even though the company's second-quarter earnings last month were a complete debacle (a leaked internal memo forced the firm to release its results earlier than planned), with weak guidance taking most of Wall Street's attention, the company remains on track to continue improving its longer-term fundamentals.

Management announced a 50% dividend increase recently, bringing its payouts to 12 cents per share.

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International brewing company Molson Coors Brewing ( TAP) is one of the biggest names in beer, with names such as Coors Light, Molson, Blue Moon and Keystone sitting in its cooler. While league leader Anheuser-Busch InBev ( BUD) remains the biggest threat to the $8.3 billion beer maker, a series of mergers and joint ventures have strengthened this firm's operations immensely in the last few years.

The biggest tailwind in Molson Coors' favor is the joint venture the firm entered into with SABMiller (SBMRY) in 2008 -- the combined firm is responsible for selling both Molson Coors and Miller brands in the U.S., generating $315 million in annual savings for Molson Coors and helping the company to compete against much larger Anheuser.

Also in investors' favor is Molson Coors' exposure to international markets. Massive exposure to Canada is likely to provide some currency exchange benefits for investors given the external pressures on the dollar right now. The same is true of the firm's business in the U.K. Expect to parlay CAD or GBP strength into dividends in 2011.

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As a diversified agriculture and food company, Bunge ( BG) has been subject to the rise in agricultural commodity prices that's been going on for the last few months. In many of the businesses it operates, Bunge acts as a sort of intermediary between agricultural producers and food companies, processing the raw materials into a form that food companies ultimately turn into end products. As a result, many moving parts can impact the company's profitability for any given quarter.

Shareholders no doubt welcome last week's 8.7% dividend increase, but volatile earnings could put the consistency of the firm's future payouts in question. While Bunge's underlying business is solid, and its balance sheet is reasonably strong, it may be best to avoid exposure to this stock until soft commodity prices settle.

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2011 is turning out to be a very strong year for health insurer UnitedHealth Group ( UNH) -- shares of the $53 billion firm are up more than 36% since the first trading day of January. Of course, management has been contributing to investor returns as well, increasing its payout by 30% recently.

The sheer size of UnitedHealth's operations give it a massive advantage over its peers. In total, the company counts more than 77 million Americans as its customers, a network size that gives the company major negotiating leverage when determining costs on both ends of the spectrum -- medical providers and insurance customers.

While that's traditionally helped drive solid margins for the company, the major question remains the constantly changing fate of healthcare reform legislation. There's little question that many parts of its current incarnation will be costly for UNH -- but changes could derail current estimates.

Still, the company has shown in the past that it's able to adapt to regulatory changes and remain a high performer. While a relatively low dividend yield makes this a less viable core holding for an income investor, the high profile of this health insurance giant makes its dividend changes significant nonetheless.

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Pharmaceutical and medical supply firm McKesson ( MCK), one of TheStreet Ratings' top-rated distributors stocks, is another name that's been benefiting from relative strength in the healthcare sector; shares are already up more than 20% this year thanks to strong fundamental performance. Now the company is trying to leverage its success in its core business to become a major name in the medical IT business.

Even though McKesson still earns the vast majority of its profits through selling pharmaceuticals and medical supplies, its increasing exposure to medical IT should be looked on favorably by investors right now. Demand for medical IT products is increasing as legislation pushes medical records and paperwork into digital form. With its expansive customer Rolodex and resources, the company should be able to grow its IT initiative faster than many of its peers.

Recently, McKesson raised its dividend by 11.1%. That brings the company's quarterly payout to 20 cents per share.

At the time of publication, Elmerraji had no positions in stocks mentioned.

Jonas Elmerraji is the editor and portfolio manager of the Rhino Stock Report, a free investment advisory that returned 15% in 2008. He is a contributor to numerous financial outlets, including Forbes and Investopedia, and has been featured in Investor's Business Daily, in Consumer's Digest and on MSNBC.com.